Did you know that owning property has tax incentives as a "mortgage interest deduction?" This article will outline what a mortgage interest deduction is, its limits, and how to include this deduction in your taxes.
The mortgage interest deduction is a portion of your itemized tax deductions --the section that reduces the amount you may owe to Uncle Sam.
Including a "mortgage interest deduction" subtracts the interest paid on loans you used to purchase, build, or renovate a property. You can use this deduction every year you do your taxes, and this perk applies to the mortgage interest paid for primary and secondary homes.
Be aware, however, that the deduction does not include payments made to homeowners or private mortgage insurance (PMI). But several other property-owning expenses are tax-deductible, such as your:
This list isn't definitive and should not be mistaken as professional tax advice. However, it's an excellent point to mention to your tax preparer or for you to investigate further as you do your taxes.
Tax laws change frequently. The most recent adjustment was made with the Tax Cuts and Jobs Act, decreasing the limit. This policy states that single or married individuals that file jointly can deduct a max of $750,000 in interest.
However, married couples who file separately have a limit of $375,000 each. Note that there are some exceptions that you can explore with your tax professional. Here are some of those exceptions:
Prepaid interest points can also be deducted, but it works differently as the amount you can deduct will gradually decrease. So the amount you deduct the year you purchased the points will be less in subsequent years.
At the beginning of the year, your lender will send you Form 1098, showing how much was paid in interest and points in the previous year. Note that you'll only receive 1098 if you paid more than $600 in interest during the tax year.
To itemize the deduction, you'll want to report them on Schedule A, Form 1040. This is the section where you'd also list deductions for charitable donations or medical expenses.
Tax law is constantly changing and requires professional guidance, especially when it comes to deductions. If you need a recommendation for a knowledgeable tax professional, don't hesitate to contact us. And when it comes to home financing and enjoying the perks of homeownership, we're the top choice! Get in touch with us today and find out how much you qualify for.